Modi government approves steep hike in MSP for Kharif crops

ET Bureau|

Updated: Jul 05, 2018, 10.56 AM IST

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The additional bill is likely to be around Rs 33,500 crore. The added cost of MSP is 0.2% of GDP, according to the cabinet note. The share of paddy in the additional outgo will be around Rs 12,300 crore.

NEW DELHI: The Union Cabinet has approved a steep rise in the minimum support price of crops, giving farmers the promised 50% return on input costs, a politically astute move that can ease farm distress and boost rural demand if implemented effectively, but it can also stoke inflation.

The biggest increase in MSP, about 40-50%, is for coarse grains that are planted by the poorest farmers, mostly in unirrigated areas. About a quarter of India’s area under such crops is in pollbound Rajasthan, with the rest split between several states including Maharashtra, Karnataka, Uttar Pradesh, Odisha, Andhra Pradesh and Madhya Pradesh.

The government said the “historic” Rs 15,000-crore move fulfilled the promise made in this year’s budget that MSPs would be determined on the principle that the harvest should get the farmers 150% of the cost of planting and tending to the crop. Arun Jaitley, who promised higher MSP in his budget speech, said on Twitter that the provisioning already made for food subsidy was enough to absorb the cost without breaching fiscal deficit target.

The cost “includes all paid-out costs such as those incurred on account of hired human labour, bullock labour/machine labour and rent paid for leased in land”, a government statement said.

This also includes “expenses incurred on use of material inputs like seeds, fertilisers, manures, irrigation charges, depreciation on implements and farm miscellaneous expenses, and imputed value of family labour”, said the statement.

Based on this, the government has raised the price of paddy by 13%, jowar 42%, bajra 37%, ragi 52%, and maize 19%. Pulses, which saw a substantial increase in the past few years and are adequately stocked, saw an increase of 4% for arhar, 25% for moong and 3.7% for urad. Among oilseeds, soya bean that is grown extensively in Madhya Pradesh is up 11.5%, niger seed that is planted a lot in Odisha is up 45% while groundnut has been raised nearly 10%.

Officials said this year’s increase in support prices for the kharif, or summer-sown, crops is the highest ever, and would help fulfil Prime Minister Narendra Modi’s promise to double farmers’ income by 2022.

However, support prices were also increased substantially in the years before the past two general elections, a former secretary to the government said. “In 2012-13, the MSP of paddy common variety increased by 15.75%, jowar by 53%, bajra by 20%, maize by 20%, urad by 13.2%, arhar by 4%, moong by 10%, groundnut by 37% and cotton (medium staple) by 28.6%. In 2008-09 also, there was a substantial increase,” he said.

The Congress party reacted saying farmers were facing much higher costs than what had been considered. “BJP knows that the elections are coming and as they have not done anything for farmers they have increased the minimum support price at the end of their government session, which is again ‘one more jumla’,” party spokesman Randeep Singh Surjewala said.

However, Pradip Mazumdar, agriculture adviser to West Bengal chief minister Mamata Banerjee welcomed the decision. “West Bengal is ready with the infrastructure to provide higher MSP to its farmers. Last year we had procured 50 lakh tonnes of paddy.

This year we can procure more. But implementation may remain a challenge in many states due to lack of proper infrastructure.”

Leaders of farmers’ bodies said the increase was good, but it did not factor in the recent increase in fuel prices and that barely 10% of farmers were able to sell to the procurement agencies.

The corporate sector, however, expects higher sales of consumer goods, motorcycles, tractors and other goods. “The increase in MSP will result in higher disposable income in the hands of rural consumers. This would certainly boost consumer sentiments in the hinterland,” Dabur India chief financial officer Lalit Malik said.

However, this would also raise costs, said B Krishna Rao, category head at Parle Products that gets over half its sales from rural markets. “There will be dual impact. Prices of raw materials could go up which in turn could result in price hikes. At the same time, higher farm income will lead to an increase in consumption across segments from high-ticket items to smaller FMCG products,” Rao said.

Analysts said higher MSP would have an impact on the fiscal deficit, increase inflation and put pressure on the central bank to raise rates. India Ratings and Research estimates that the hike in MSP will impact wholesale inflation by 38 basis points y-o-y and retail inflation by 70 basis points.

Aditi Nayar, principal economist at ICRA, said the inflationary impact would be moderated by the fact that the highest increase in MSP is in coarse grains, which have a small weight in the price indices.

“Nevertheless, it is difficult to envision a scenario in which the recently announced hike in MSPs actually translates into higher realisations for farmers, without an increase in prices for the end-consumers or the costs for the central and state governments through higher procurement costs and subsidy bill,” she said.

YS Guleria, senior vice-president, sales and marketing, at Honda Motorcycle and Scooters India said it is a very positive development. “This will give further boost to sentiment in rural areas. We expect the faster conversion from consideration to buying in the coming months,” he said.

It is also expected to accelerate sale of tractors, which hit a new peak in 2017-18 and growing in double digits. “Securing the right price for the produce will offer a significant upside on farmers’ income and thereby impact demand positively. The move will be a very good building block in the journey of doubling farmer income,” said Rajesh Jejurikar, president for Farm Equipment Sector at Mahindra & Mahindra.

Ajay Vir Jakhar, chairman of Bharat Krishak Samaj, said the rise was significant but it does not cover GST and increase in diesel prices in past 12 months. “Only 10% of Indian farmers regularly benefit from MSP and it is not a political game changer that it is being made out to be. The biggest challenge to government now is procurement of the kharif crop at the announced MSP,” Jakhar said.

Mohini Mohan Mishra, secretary at Bhartiya Kisan Sangh, the farmer’s association affiliated with Sangh Pariwar said, “farmers planting coarse cereals, oilseeds and pulses which are grown in dryland and rainfed area will gain a lot with this increase in MSP by at least 150% cost of production. It will help more than 50% of Indian farmers”.

P Chengal Reddy, chief adviser to the Consortium of Indian Farmers’ Associations, said: “Andhra Pradesh government recommended Rs 2,800 per quintal for paddy while Centre recommended Rs 1,750 per quintal.

Have they taken in consideration that fertiliser cost has risen and labour cost is different for each state? CACP should be an autonomous body and independently evaluate the MSP and not be under government which influences it.